A small business owner is expected to handle various aspects of the business single-handedly. As he does not have access to extensive human and financial resources as big corporations do, he must try and maximize the use of all the limited resources. The usage can be in terms of manpower, space, money, and all other factors that are essential for a business to run to its full potential.
Out of all the resources, financial resources are the most important resources that matter most in the success of the business. In simple words, funds determine the continuity and direction of the business. So, it is important to manage funds in the best possible way for the benefit of the business.
If the business owner has enough money at his disposal, he can use it to maximize the growth of the small business. And also take the benefit of all the opportunities. Having said that, the fact of the matter is that no small business owner can always have enough liquidity at all times. He would face a paucity of funds which will leave him in a situation where he will have to think of the future of the business.
So, in order to avoid situations like this, the apt way is to manage funds appropriately. This also includes availing and managing credit facilities in terms of small business loans, as and when the need for it arises. There are n number of financial institutions in India that offer different types of business loans including collateral-free business loans.
The business owner can avail the funds conveniently as per the financial requirements of the business, such as for the payment of expenses, purchase of equipment or machinery, and payment to suppliers. Let’s talk about business loans without collateral in length first.
Business Loans without Collateral
When a new business is started, it is very obvious that the resources available at disposal are very limited. However, it is still important to ensure the success of the business. Nonetheless, the small business owner is not always in a position to avail secured loans by hypothecating an asset.
This is where business loans without collateral come in the scene to rescue them. Unsecured business loans are the loans offered without any security hypothecation. The amount availed can be used for any purpose. The repayment tenure for this type of loan for a business is 6 months to 24 months.
When the small business owner is in urgent need of funds, he can apply for business loans without security through an online channel, i.e. through the loan lender’s website. The businessman just needs to provide the scanned copies of KYC documents and financial documents. If the credit profile matches the specifications set by the loan lender, the loan application will be approved and the amount will be credited to the small business owner’s bank account within a few days.
APR VS Interest Rate
When availing a business loan, most business owners tend to focus only on the business loan interest rate. They are keen on determining the interest rate of the loan for business to assess the cost of availing a loan. However, instead of interest rate, APR should be given due importance.
Annual Percentage Rate or APR is defined as the cost of the loan that will be incurred by the borrower annually. APR includes all the charges that the business owner has to pay towards the loan account, including file charges, processing fee, surcharge, convenience charge, and interest rate. That said, although the interest rate contributes majorly to APR, it is just a part of APR.
So, it is clearly evident that the interest rate is just a part of APR and APR is a comprehensive measure of the total cost of the business loan. The interest rate may be low, the APR can be on the higher side due to other variables. In a nutshell, the small business owner must consider APR while selecting the business loan for his small business.
He can ask the loan lender about the APR and not the interest rate. This will help in making a better informed and sound decision. And he can also save a significant amount of money on the annual payments towards the loan repayment. Let’s discuss APR in depth.
Annual Percentage Rate
Following are some important facts about APR that the business owner must know in order to negotiate better with the lender:
APR is the Accurate Cost Estimation
APR includes all the cost involved in availing a business loan. However, there are a few charges that are not included in it, such as bounce charges, late payment charge, and early loan closure penalty. So, it is important to ask the lender about these charges in advance. Also, APR will help in uncovering the hidden costs of the business loans as such if there are no other hidden costs, the APR will be equal to interest cost.
Credit Score Impacts APR
All lenders use different measures to calculate the APR and so, it is dependent on different factors among which CIBIL score is the most important one. The higher the CIBIL or credit score, the lower the risk in approving loan application will be perceived by the lender. And this will lower down the APR. The businessman is suggested to never calculate the APR by himself and ask the lender for all the related information.
APR is certainly the most reliable tool to calculate and compare loans. However, it is important to understand that the loan repayment tenure will also impact the final cost of the unsecured business loan. If an extended repayment tenure is chosen, the APR will be on the higher side and the vice versa.
Thus, it can be concluded that the business owner must be informed and knowledgeable about all the aspects of the business loan. Only an informed borrower can grab the best loan deal!
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